Sitting at the bottom of the mountain in Iceland, there was time enough last week to reflect on this country's importance in the struggle between the world's internet users and state secrecy, never better represented than by publication by Wikileaks of a video showing the slaughter of more than a dozen people by an American helicopter gunship in Baghdad.

Iceland is proposing radical new laws that will create a safe haven for investigative journalism and therefore the release of this kind of shocking footage, which exposes a cover-up, as well as the true nature of a war where a superpower deploys its weapons on a third world country, in this instance cutting down, among others, two people working for Reuters. The Icelandic Modern Media Initiative (Immi) will allow organisations like Wikileaks to provide the strongest possible protections for sources and whistleblowers releasing sensitive material that big business and secretive states want to suppress.

Having flown from Britain last Tuesday where our disreputable Parliament was about to pass the Digital Economy Bill with virtually no scrutiny and certainly no concern for freedom of expression, it was remarkably refreshing to read the following from the official website of the Immi, which, incidentally, is supported by all parties here. "The goal of the Immi proposal is to task the government with finding ways to strengthen freedom of expression around the world and in Iceland… we also feel it is high time to establish the first Icelandic international prize: the Icelandic Freedom of Expression Award."

The prospect of this investigative sanctuary has naturally attracted Wikileaks and earlier this year its Australian founder, Julian Assange, spent three weeks advising the Icelandic government on the initiative. He has since alleged that the CIA has mounted an aggressive surveillance operation against him and that the Icelandic intelligence officials also pursued him.

Well, who knows what's true, but the idea of any British government proposing such a prize, let alone supporting an initiative like this is unthinkable: we pride ourselves on our innate love of free expression and liberty but in the last 20 years, along with the expansion of state power, we have done little to stop the growth of official secrecy and very little to assert our right to know.

In what seems at this distance to be an unusually dire beginning to an election campaign, few perhaps noticed that Lord Mandelson's Digital Economy Bill, presented as protection for ordinary copyright holders against file-sharing, will enable our government to block websites such as Wikileaks on grounds that it infringes copyright; more or less everything the website publishes is someone's property. Stephen Timms, the government minister piloting the bill in the Commons, said that he would not want to see the bill restrict freedom of speech, but then, predictably, refused to guarantee that Wikileaks would not be blocked.

This badly drafted, poorly scrutinised legislation will hamper but not impede Wikileaks, for a few there always will be ways round cyber blockades. However, imagine the way our government might have tried to suppress publication of MPs' expenses by Wikileaks or documents connected to the Iraq war. Although the new bill was not drafted to protect MPs and government, no effort would be spared to assert the rights of copyright holders, just as no effort was spared by Gordon Brown in a masterclass of opportunism when he used the 2001 Anti-terrorism, Crime and Security Act in 2008 to freeze assets of Iceland's Landsbanki, which owned the failed bank Icesave.

As surely as Lord Mandelson will never have to answer personally to the electorate for this shoddy piece of legislation, the new copyright laws will be used to protect those in power, elected or otherwise, and that must be a bad thing. But what we are seeing here is the natural response of just one state to the threat that the web poses to its control and need for secrecy. Last year, the US designated a fifth domain of military endeavour to join those of land, sea, air and space. It is cyberspace and, among other things, the United States has created a special unit, the 24th Air Force Cyber Command at San Antonio, Texas, to develop defences, as well as offensive capabilities to "assess adversaries' network security". It is not hard to imagine the response of the Cyber Command, or AFCYBER as it will be known, to a security breach like the one showing American aircrews killing people as though they were playing a video game.

The fifth domain is a sphere where spies and politicians and the military must compete and it is right to stress that sometimes this will be for all our security. But often it will not, which is what makes the Icelandic initiative important. The Immi is utterly in keeping with the country's feelings of violation and remorse following the crash of its three main banks with debts of €50bn – about €160,000 for each Icelander. Some knew, but the vast majority of the population did not understand the true nature of the country's exposure, which is felt all the more because just two or three generations back this was a thrifty nation where the majority made their living from fishing and a little agriculture.

Openness has become an obsession here equal to the belief that all citizens have the right, indeed duty, to inform themselves about what is being done in their name. That view applies to all democratic governments, not just their own, which is why the Icelanders may be on the point of providing a crucial service to the world.

Many governments, not least the Americans, are deeply hostile to what they regard as irresponsible behaviour by the Icelanders, but it is worth noting that Iceland promises to consider "the legal environments of other countries" in developing the Immi. How Iceland is going to square radical policies of openness with the laws of other territories remains to be seen, but after its treatment by the British and the financial collapse in the US, it will take a fairly robust attitude to appeals from at least these two governments.

There is also something else propelling the Immi, which occurred to me as I watched vast superjeeps descend perilously in the middle of the night from a storm on the Eyjafjallajokull glacier in the south where a volcano is erupting. It is the Icelanders' sense that you cannot allow for every eventuality. Bad things happen and it is better that you understand the nature of risk rather than give up your freedoms in exchange for that illusory sense of security that has inspired so much recent legislation in Britain and so much official secrecy.